The Banking Executive Magazine - October 2023

The Wider Impact of Us Government Shutdown shutdown is analysed including the impact on banks. The study concludes with a call to Arab countries to resolve their gov- ernment budget and funding issues in order to avoid government shut- downs. Arab banks are also advised to put their own strategies to avoid the risks of government shutdowns and to deal with the consequences of government shutdowns on banks and stock exchanges and on various economic sectors. WHAT IS US GOVERNMENT SHUTDOWN? A United States (US) government shutdown occurs when nonessential US government offices can no longer remain open due to a lack of fund- ing. The lack of funding usually oc- curs when the Congress fails to enact the annual appropriation bills or a temporary funding measure to fi- nance the government for the up- coming fiscal year. The shutdown remains in effect until funding legis- lation is passed. A shutdown can be full or partial, depending on how many agencies are affected. HOW US GOVERNMENT FUND ITS AGENCIES The US government funds its agen- cies through a process called the fed- eral budget process. The process begins a year before the budget is to go into effect. Federal agencies cre- ate budget requests and submit them to the White House Office of Man- agement and Budget (OMB). OMB refers to the agencies’ requests as it develops the budget proposal for the president. The president submits the budget proposal to Congress early the next year. Proposed funding is di- vided among 12 subcommittees, which hold hearings. Each is respon- sible for funding for different govern- ment functions such as defence spending or energy and water. The House and Senate create their own budget resolutions, which must be negotiated and merged. Both houses must pass a single version of each funding bill. Congress sends the ap- proved funding bills to the president to sign or veto. The annual budget covers three spending areas: mandatory spending, discretionary spending, and interest on the debt. Mandatory spending in- cludes funding for Social Security, Medicare, veterans benefits, and other spending required by law. This typically uses over half of all funding. Discretionary spending includes fed- eral agency funding. Congress sets funding levels for these each year. This usually accounts for around a third of all funding. Interest on the debt usually uses less than 10 per- cent of all funding. RESOLVING A GOVERNMENT SHUT DOWN In the United States, the government shutdown can be resolved by passing a new funding legislation that is signed into law by the President. Congress can pass a stopgap funding measure to keep the government open temporarily until a long-term funding bill is passed. In addition, lawmakers can also pass a bill that would prevent future government shutdowns by triggering two-week stopgap bills and requiring Congress to focus solely on spending bills if Congress misses its September 30 funding deadline. IMPACT OF US GOVERNMENT SHUTDOWN The impact of a government shut- down can vary and can depend on the duration of the shutdown and the specific agencies affected. The impact of a US government shut- down can be far-reaching and can af- fect many Americans, including federal employees, Social Security recipients, air travelers, and those who rely on national parks. Federal employees and active-duty troops would feel the effect immedi- ately if their agencies are not funded. Essential workers would remain on the job, but others would be made redundant until the shutdown is over. None would be paid during the shut- down. Social Security recipients may also face delays in receiving their checks and services. Air travel could be affected, as Transportation Secu- rity Administration (TSA) agents and air traffic controllers may not receive their paychecks on time. National parks may also close or operate with limited services. The economic impact of a govern- ment shutdown can also be signifi- cant. A shutdown could weigh on economic growth, dragging down year-over-year quarterly Gross Do- mestic Product (GDP) by 0.2 per- centage points per each week of the shutdown. Companies with consid- erable exposure to government spending could see a negative im- pact as well. PAST US GOVERNMENT SHUTDOWNS As of September 2023, there have been ten government shutdowns in the United States. The first shutdown occurred in November 1981, when President Ronald Reagan vetoed a funding bill. The most recent shut- down occurred in January 2018 and lasted for three days. The longest shutdown in US history was from December 22, 2018, to January 25, 2019, during the Donald Trump ad- ministration. US GOVERNMENT SHUTDOWN IN 2023 There was a possibility of a govern- ment shutdown in October 2023. The Republicans halted the spending bill for a third time, and if a consen- sus was not achieved regarding the budgets, the federal government would have gone into a total shut- down starting October 1, 2023. However, the US Congress passed a stopgap bill to avert the shutdown. The Senate passed a last-minute spending bill on Saturday 29 Sep- tember 2023 at night averting a gov- ernment shutdown that would have triggered a calamitous domino effect on the American public and econ- omy. The measure was signed into law by President Joe Biden. ISSUE 178 OCTOBER 2023 the BANKING EXECUTIVE 27